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Growth of any given economy is the function of the GDP and the inflation rate. The number clubbed together broadly defines the rate at which the nation’s value of the products and services grow, e.g. if India’s GDP is 8 per cent and the inflation is 6% for that given year, then the country has grown at 8 + 6 i.e. 14% in that year. Hence, GDP and inflation play a very important role in determining the growth rate of a nation. To control the inflation, the Central Banks makes continuous efforts i.e. they try and control the inflation levels and balance it, (Which should neither be too less that it continues to bring negative growth and there are no goods and services produced). The inflation rate should not be too high, that means that the goods and services become more expensive and is not consumed that much which further lays down consequences towards the interest rates that drives the country in economic growth. To quote on this further you must have realized in the recent past i.e. in 2008 when the inflation number went up to 13 per cent and the RBI then had to bring down the respective rates to soften the borrowing and lending money and to infuse the much needed liquidity further bringing the inflation under control. Hence, the Central bankers of any given country work cohesively with the Union Government towards the growth and keep a check and balance on the interest rates and the inflation rate.

To further elaborate you ahead, to expand growth the Central Bank lighten interest rates to inject the much needed liquidity in the market. By softening the interest rates or the lending and borrowing rates, people get attracted towards buying or borrowing money from the Banks and financial institutions, as it makes money as a cost cheaper, resulting into cheaper loans. Say cheaper loans to buy home, purchasing of cars, else for personal use. Corporate also benefit from this low funding scenario which can be utilized for business expansion, for further industrial production, for corporate working capital requirement, to open up more factories, to start new ventures, for trading activities in exporting and importing of goods and services. When such actions are acted upon the economy gets into the consumption mode, more houses are built, more cars are bought, and more factories are established more goods and services are produced, lifting the GDP number / growth of the given country. All this facilitates into a running economic cycle with more money being exchanged leading to growth in economic activity. So the high demand for loans give way to further demand for the other related industries.

On the contrary when there is a situation of disproportionate money supply in the market, the central bank absorbs the excessive liquidity by tightening the rates. Due to increase in money supply the costs for the products and services goes up, which further takes the inflation number up. The Central Bank then tries to suck the liquidity from the system and that is when they raise the relevant rates ahead. The Central Bank tries to tighten the liquidity situation and they pull back this money supply. Which brings dampness in the market and pessimism surrounds the environment. People and companies get cautions before spending, consumption power or their confidence of expansion and all gets a pause or a breakdown.

The fact remains that at the end of the day, the demand function should follow the further demand for goods and services from manufacturing to services to agriculture to infrastructure to urban development and so on and so forth. Interestingly, India stands to benefit from all such functions with the fact that we are a nation of over one billion population there will definitely be requirement for goods and services that needs to be consumed and attained by such a big population, or such a big market.

This in itself is a major reason why companies, manufacturing units, factories across industry and across nations are looking at this country, they want to establish base in India, and they want to get going with the fact of having a low cost high manpower quality and intelligent resource that India has. So India in any case is seen as one of the biggest, hottest nation for decades ahead and if these companies and Corporations across globe needs to survive in business for that longer period, they cannot ignore India at all, they cannot ignore this country and they need to have the presence felt to have some percentage of pie in the market share of their respective industry.